Issue 4

Transatlantic Perspectives on the Political Question Doctrine

On September 24, 2019, the Supreme Court of the United Kingdom (UKSC) unanimously invalidated U.K. Prime Minister Boris Johnson’s attempt to suspend (or “prorogue”) Parliament. The UKSC’s decision, R (Miller) v. Prime Minister (Miller/Cherry), was a political thunderclap, contributing to the U.K.’s political turmoil over its exit from the European Union, or “Brexit.” But the legal crux of Miller/Cherry was justiciability: was the Prime Minister’s decision to prorogue parliament a non-justiciable political question? Despite this question’s centrality to the case, few commentators have analyzed the Miller/Cherry decision through the lens of the political question doctrine, an area of law held largely in common between the United States and the U.K. Likewise, scholarly analysis has failed to explore the striking contrast between Miller/Cherry and Rucho v. Common Cause, the U.S. Supreme Court’s most recent foray into the political question doctrine.

This Comment does both. Miller/Cherry adopted a narrow understanding of the political question doctrine and instead embraced a robust vision of judicial review which closely resembles that of famed mid-century law professor Herbert Wechsler. The U.S. Supreme Court’s recent decision in Rucho v. Common Cause, however, took the opposite approach. Where Miller/Cherry offered a full-throated Wechslerian defense of the judiciary’s obligation to police constitutional constraints, Rucho channeled Wechsler’s contemporary and frequent interlocutor Alexander Bickel. Holding that challenges to partisan gerrymandering are not justiciable, Rucho, following Bickel, emphasized institutional humility and the need for courts to act cautiously in light of the “counter-majoritarian difficulty.”

Miller/Cherry and Rucho thus continue the great debate between Wechsler and Bickel, offering contradictory answers to the same foundational questions. Read together, they present a fascinating and transatlantic juxtaposition, illuminating key questions about the political question doctrine, judicial review, and the proper role of the courts.

Introduction

On September 24, 2019, the Supreme Court of the United Kingdom (UKSC) issued its decision in R (Miller) v. Prime Minister (Miller/Cherry),1 1.R (Miller) v. Prime Minister (Miller/Cherry) [2019] UKSC 41 (appeals taken from Eng. & Scot.). The case goes by many names in its nascent scholarly treatment, including the delightful, if presumptuously historical, “Case of Prorogations.” E.g., Paul Daly, Talking About the Case of Prorogations,Admin. L. Matters (Sept. 27, 2019), https://www.administrativelawmatters.com/blog/2019/09/27/talking-about-the-case-of-prorogations/ [https://perma.cc/8U7K-JXL3]. In order to avoid confusion with the lower court decision also captioned R(Miller) v. Prime Minister, I will refer to the case as “Miller/Cherry”both in text and in citations.Show More and British politics turned on its head. In an understated oral announcement2 2.For the video of the announcement, see Supreme Court: Suspending Parliament Was Unlawful, Judges Rule,BBC News (Sept. 24, 2019), https://www.bbc.com/news/uk-politics-49810261 [https://perma.cc/5UPG-EV35].Show More and an unadorned written opinion, a unanimous Court held that Prime Minister Boris Johnson’s five-week suspension of Parliament—in Parliamentary jargon, “prorogation”3 3.For more specifics on prorogation, see infra notes 22–24 and accompanying text.Show More—was unlawful and therefore void. The decision overturned the Prime Minister’s latest gambit in his duel with a recalcitrant House of Commons over “Brexit,” the U.K.’s planned exit from the European Union. Miller/Cherry was immediately controversial, prompting calls for the Prime Minister to resign,4 4.E.g., Karla Adam & William Booth, U.K. Supreme Court Rules Prime Minister Boris Johnson Suspended Parliament Illegally, Wash. Post (Sept. 24, 2019, 2:00 PM), https://www.washingtonpost.com/world/europe/britains-supreme-court-set-to-rule-on-boris-johnsons-decision-to-suspend-parliament/2019/09/24/af719d70-dd9e-11e9-be7f-4cc85017c36f_story.html [https://perma.cc/U8EH-B29V].Show More jubilant declarations that the rule of law had been vindicated,5 5.See Owen Bowcott, Ben Quinn & Severin Carrell, Johnson’s Suspension of Parliament Unlawful, Supreme Court Rules, Guardian (Sept. 24, 2019), https://www.theguardian.com/­law/2019/sep/24/boris-johnsons-suspension-of-parliament-unlawful-supreme-court-rules-prorogue [https://perma.cc/9ED9-B9V2].Show More and accusations that the Court had perpetrated a “constitutional coup.”6 6.E.g.,Jonathan Ames & Chris Smyth, Supreme Court Ruling: Senior Judges Could Face US-Style Grillings, Times (Sept. 26, 2019), https://www.thetimes.co.uk/article/supreme-court-ruling-senior-judges-could-face-us-style-grillings-mh22znd5j [https://perma.cc/G6TV-ASYF] (quoting prominent pro-Brexit MP Jacob Rees-Mogg).Show More

Although many British commentators have analyzed and criticized Miller/Cherry since its decision,7 7.Perhaps most notable was a vehement and extensive criticism published only four days after the decision by John Finnis, a professor at Oxford and the former doctoral advisor to U.S. Supreme Court Justice Neil Gorsuch. SeeJohn Finnis, Pol’y Exchange, The Unconstitutionality of the Supreme Court’s Prorogation Judgment (Sept. 28, 2019), https://policyexchange.org.uk/wp-content/uploads/2019/10/The-unconstitutionality-of-the-Supreme-Courts-prorogation-judgment.pdf [https://perma.cc/9RS4-FGFU]. Other critics of varying degrees of vehemence abound in Anglophone academic circles. E.g., Martin Loughlin, Pol’y Exchange, The Case of Prorogation (Oct. 15, 2019), https://policyexchange.org.uk/publication/the-case-of-prorogation/ [https://perma.cc/9E8D-FXC9]; Steven Spadijer, Miller No 2: Orthodoxy as Heresy, Heresy as Orthodoxy, UK Const. L. Ass’n: Blog (Oct. 7, 2019), https://ukconstitutionallaw.org/2019/10/07/steven-spadijer-miller-no-2-orthodoxy-as-hersey-hersey-as-orthodoxy/ [https://perma.cc/DQ2T-W­2RY]; Paul Yowell, Is Miller (No 2) the UK’s Bush v Gore?, UK Const. L. Ass’n: Blog (Oct. 7, 2019), https://ukconstitutionallaw.org/2019/10/07/paul-yowell-is-miller-no-2-the-uks-bu­sh-v-gore/ [https://perma.cc/A8GJ-ZZWN].The decision has also had its defenders. E.g., Nick Barber, Constitutional Hardball and Justified Development of the Law, Jud. Power Project (Sept. 29, 2019), https://judicialpowerproject.org.uk/nick-barber-constitutional-hardball-and-justified-development-of-the-law/ [https://perma.cc/Z3FH-2NV2]; Alison Young, Deftly Guarding the Constitution, Jud. Power Project (Sept. 29, 2019), https://judicialpowerproject.org.uk/­alison-young-deftly-guarding-the-constitution/ [https://perma.cc/R6JP-Z4J3] (arguing that Miller/Cherry “demonstrates a delicate balance between law and politics, affirming the Supreme Court’s role as the guardian of the UK’s constitution”). For a more extensive list of pieces commenting on Miller/Cherry, see Paul Craig, The Supreme Court, Prorogation and Constitutional Principle, Pub. L. (forthcoming) (manuscript at 1–2 nn.4–8), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3477487 [https://perma.cc/Y6ZR-PB­XD].Show More the case has not received sustained or detailed attention on this side of the Atlantic.8 8.One exception is Sam Shirazi, The U.K.’s Marbury v. Madison: The Prorogation Case and How Courts Can Protect Democracy, 2019 U. Ill. L. Rev. Online 108. Shirazi compares and contrasts Miller/Cherry with Marbury v. Madison and more generally focuses on the salutary role of judicial review in constitutional systems. Id. Shirazi spends little time discussing Miller/Cherry in the context of the political question doctrine, see id. at 113, and only fleetingly connects it to Rucho v. Common Cause, see id. at 118 n.79. See also Gerard N. Magliocca, Judicial Review Comes to Britain, Balkinization (Sept. 24, 2019), https://balkin.blogspot.com/2019/09/judicial-review-comes-to-britain.html [https://perma.cc­/5HUQ-8ZBB] (providing brief summary of Miller/Cherry by an American law professor).Show More This lack of American attention is regrettable. Miller/Cherry holds important lessons for the American lawyer, especially through its striking contrast with recent decisions of the U.S. Supreme Court.

Although nominally about the Prime Minister’s prorogation of Parliament, Miller/Cherry was really about justiciability: could (or should) the Court decide the case in the first place? The UKSC’s answer to this question not only took sides in a long-standing debate about the proper role for courts in reviewing government action—it also did so in a way directly contrary to the U.S. Supreme Court’s decision three months prior in Rucho v. Common Cause. Whereas Miller/Cherry endorsed a robust judicial role and a correspondingly narrow political question doctrine—a perspective associated with famed mid-century academic Herbert Wechsler—Rucho emphasized constraint on judicial discretion and expressed a concern for institutional legitimacy, two hallmarks of the approach of Professor Alexander Bickel.

Although decided on different sides of the Atlantic, these two cases are fundamentally about the same issue.9 9.There are undoubtedly differences between the broader legal regimes of Britain and the United States which affect how courts in each country think about justiciability. For instance, Britain’s lack of a written constitution means that British courts, unlike American courts, generally would not look to constitutional text as a constraint on judicial discretion. Cf.infranotes 104–08 and accompanying text (discussing this American tendency). This Comment does not—and does not need to—argue that the justiciability inquiry in the two nations is identical. Rather, because the political question doctrine’s basic argumentative contours are shared between the two nations, see infra Section I.B, Miller/Cherry and Ruchocan fruitfully be read together.Show More Far from merely being a curious case from a foreign jurisdiction, Miller/Cherry lays bare the tensions inherent in the political question doctrine and in judicial review more broadly. Especially through its juxtaposition with Rucho v. Common Cause, Miller/Cherry provides an important perspective on judicial review and the judicial office in a time of heightened attention to the proper role of the courts.

  1. * J.D., University of Virginia School of Law, 2020; M.A. (History), University of Virginia, 2020. My thanks to Charles Barzun, Justin Aimonetti, Clay Phillips, and especially Hanaa Khan for offering helpful thoughts on previous drafts of this Comment; to Ray Gans, Andrew Kintner, and everyone else at the Virginia Law Review who helped edit and publish it; and to my fiancée Madeline Roth for her constant and loving support. ↑
  2. R (Miller) v. Prime Minister (Miller/Cherry) [2019] UKSC 41 (appeals taken from Eng. & Scot.). The case goes by many names in its nascent scholarly treatment, including
    the delightful, if presumptuously historical, “Case of Prorogations.” E.g., Paul Daly,
    Talking About the Case of Prorogations, Admin. L. Matters (Sept. 27, 2019), https://www.administrativelawmatters.com/blog/2019/09/27/talking-about-the-case-of-prorogations/ [https://perma.cc/8U7K-JXL3]. In order to avoid confusion with the lower court decision also captioned R(Miller) v. Prime Minister, I will refer to the case as “Miller/Cherry” both in text and in citations. ↑
  3. For the video of the announcement, see Supreme Court: Suspending Parliament Was Unlawful, Judges Rule, BBC News (Sept. 24, 2019), https://www.bbc.com/news/uk-politics-49810261 [https://perma.cc/5UPG-EV35]. ↑
  4. For more specifics on prorogation, see infra notes 22–24 and accompanying text. ↑
  5. E.g., Karla Adam & William Booth, U.K. Supreme Court Rules Prime Minister Boris Johnson Suspended Parliament Illegally, Wash. Post (Sept. 24, 2019, 2:00 PM), https://www.washingtonpost.com/world/europe/britains-supreme-court-set-to-rule-on-boris-johnsons-decision-to-suspend-parliament/2019/09/24/af719d70-dd9e-11e9-be7f-4cc85017c36f_story.html [https://perma.cc/U8EH-B29V]. ↑
  6. See Owen Bowcott, Ben Quinn & Severin Carrell, Johnson’s Suspension of Parliament Unlawful, Supreme Court Rules, Guardian (Sept. 24, 2019), https://www.theguardian.com/­law/2019/sep/24/boris-johnsons-suspension-of-parliament-unlawful-supreme-court-rules-prorogue [https://perma.cc/9ED9-B9V2]. ↑
  7. E.g., Jonathan Ames & Chris Smyth, Supreme Court Ruling: Senior Judges Could Face US-Style Grillings, Times (Sept. 26, 2019), https://www.thetimes.co.uk/article/supreme-court-ruling-senior-judges-could-face-us-style-grillings-mh22znd5j [https://perma.cc/G6TV-ASYF] (quoting prominent pro-Brexit MP Jacob Rees-Mogg). ↑
  8. Perhaps most notable was a vehement and extensive criticism published only four days after the decision by John Finnis, a professor at Oxford and the former doctoral advisor to U.S. Supreme Court Justice Neil Gorsuch. See John Finnis, Pol’y Exchange, The Unconstitutionality of the Supreme Court’s Prorogation Judgment (Sept. 28, 2019), https://policyexchange.org.uk/wp-content/uploads/2019/10/The-unconstitutionality-of-the-Supreme-Courts-prorogation-judgment.pdf [https://perma.cc/9RS4-FGFU]. Other critics of varying degrees of vehemence abound in Anglophone academic circles. E.g., Martin Loughlin, Pol’y Exchange, The Case of Prorogation (Oct. 15, 2019), https://policyexchange.org.uk/publication/the-case-of-prorogation/ [https://perma.cc/9E8D-FXC9]; Steven Spadijer, Miller No 2: Orthodoxy as Heresy, Heresy as Orthodoxy, UK Const. L. Ass’n: Blog (Oct. 7, 2019), https://ukconstitutionallaw.org/2019/10/07/steven-
    spadijer-miller-no-2-orthodoxy-as-hersey-hersey-as-orthodoxy/ [https://perma.cc/DQ2T-W­2RY]; Paul Yowell, Is Miller (No 2) the UK’s Bush v Gore?, UK Const. L. Ass’n: Blog (Oct. 7, 2019), https://ukconstitutionallaw.org/2019/10/07/paul-yowell-is-miller-no-2-the-uks-bu­sh-v-gore/ [https://perma.cc/A8GJ-ZZWN].

    The decision has also had its defenders. E.g., Nick Barber, Constitutional Hardball and Justified Development of the Law, Jud. Power Project (Sept. 29, 2019), https://judicialpowerproject.org.uk/nick-barber-constitutional-hardball-and-justified-development-of-the-law/ [https://perma.cc/Z3FH-2NV2]; Alison Young, Deftly Guarding the Constitution, Jud. Power Project (Sept. 29, 2019), https://judicialpowerproject.org.uk/­alison-young-deftly-guarding-the-constitution/ [https://perma.cc/R6JP-Z4J3] (arguing that Miller/Cherry “demonstrates a delicate balance between law and politics, affirming the Supreme Court’s role as the guardian of the UK’s constitution”). For a more extensive list of pieces commenting on Miller/Cherry, see Paul Craig, The Supreme Court, Prorogation
    and Constitutional Principle, Pub. L. (forthcoming) (manuscript at 1–2 nn.4–8), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3477487 [https://perma.cc/Y6ZR-PB­XD]. ↑

  9. One exception is Sam Shirazi, The U.K.’s Marbury v. Madison: The Prorogation Case and How Courts Can Protect Democracy, 2019 U. Ill. L. Rev. Online 108. Shirazi compares and contrasts Miller/Cherry with Marbury v. Madison and more generally focuses on the salutary role of judicial review in constitutional systems. Id. Shirazi spends little time discussing Miller/Cherry in the context of the political question doctrine, see id. at 113, and only fleetingly connects it to Rucho v. Common Cause, see id. at 118 n.79. See also Gerard N. Magliocca, Judicial Review Comes to Britain, Balkinization (Sept. 24, 2019), https://balkin.blogspot.com/2019/09/judicial-review-comes-to-britain.html [https://perma.cc­/5HUQ-8ZBB] (providing brief summary of Miller/Cherry by an American law professor). ↑
  10. There are undoubtedly differences between the broader legal regimes of Britain and the United States which affect how courts in each country think about justiciability. For instance, Britain’s lack of a written constitution means that British courts, unlike American courts, generally would not look to constitutional text as a constraint on judicial discretion. Cf. infra notes 104–08 and accompanying text (discussing this American tendency). This Comment does not—and does not need to—argue that the justiciability inquiry in the two nations is identical. Rather, because the political question doctrine’s basic argumentative contours are shared between the two nations, see infra Section I.B, Miller/Cherry and Rucho can fruitfully be read together. ↑

Designing Business Forms to Pursue Social Goals

The long-standing debate about the purpose and role of business firms has recently regained momentum. Business firms face growing pressure to pursue social goals and benefit corporation statutes proliferate across many U.S. states. This trend is largely based on the idea that firms increase long-term shareholder value when they contribute (or appear to contribute) to society. Contrary to this trend, this Article argues that the pressing issue is whether policies to create social impact actually generate value for third-party beneficiaries—rather than for shareholders. Because it is difficult to measure social impact with precision, the design of legal forms for firms that pursue social missions should incorporate organizational structures that generate both the incentives and competence to pursue such missions effectively. Specifically, firms that have a commitment to transacting with different types of disadvantaged groups demonstrate these attributes and should thus serve as the basis for designing legal forms.

While firms with such a commitment may be created using a variety of control and contractual mechanisms, the related transaction costs tend to be very high. This Article develops a social enterprise legal form that draws on the legal regime for community development financial institutions (CDFIs) and European legal forms for work-integration social enterprises (WISEs). This form would certify to investors, consumers, and governments that designated firms have a commitment as social enterprises. By obviating the need for costly social impact measurement, this form would facilitate the provision of subsidy-donations to social enterprises from multiple groups, particularly investors (through below-market investment) and consumers (via premiums over market prices). Thus, this social enterprise form would be to altruistic investors and consumers what the nonprofit form is to donors.

Moreover, the proposal could facilitate the flow of investments by foundations in social enterprises (known as program-related investments, “PRIs”) because it would help foundations verify the social impact of their investees. In addition, by giving subsidy-providers greater assurance that social enterprises pursue social missions effectively, the proposed legal form could facilitate public markets for social enterprises.

Introduction

In recent years, there have been efforts to encourage firms to pursue social goals. In a striking statement to public corporations, Larry Fink, Blackrock’s CEO, wrote: “Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”1 1.Letter from Larry Fink, Chairman & Chief Exec. Officer, Blackrock, to CEOs (2018), https://www.blackrock.com/corporate/investor-relations/2018-larry-fink-ceo-letter [https://­perma.cc/7QRQ-9DG6]. For a similar statement by Martin Lipton, the renowned legal advisor for public corporations, see Martin Lipton et al., The New Paradigm: A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors To Achieve Sustainable Long-Term Investment and Growth, Harv. L. Sch. F. on Corp. Governance (Jan. 11, 2017), https://corpgov.law.harvard.edu/2017/01/11/corporate-governance-the-new-para­digm/ [https://perma.cc/B5AJ-EWNW].Show More The imperative that firms pursue social goals, however, is very vague. What range of permissible non-pecuniary goals should companies be encouraged to pursue?2 2.See generally Oliver Hart & Luigi Zingales, Companies Should Maximize Shareholder Welfare Not Market Value, 2 J.L. Fin. & Acct. 247 (2017) (arguing that company and asset managers should pursue policies consistent with the non-pecuniary preferences of their investors).Show More This question reflects a much re-hashed debate regarding the role and purpose of corporations. Many studies view this topic as a matter of corporate governance. That is, the key question is whether policies that seek to create social impact—often referred to as “CSR” (for corporate social responsibility)—maximize shareholder value in the long term. If the answer is yes, then it is a win-win situation for all because such policies are assumed to benefit society.

This Article takes a different approach by arguing that the pressing question should be: Does the pursuit of social missions by for-profit organizations actually benefit the intended beneficiaries? While the literature is not conclusive,3 3.Compare Ronald W. Masulis & Syed Walid Reza, Agency Problems of Corporate Philanthropy, 28 Rev. Fin. Stud. 592, 619–21 (2015) (claiming that corporate donations advance CEO interests and reduce firm value), with Allen Ferrell, Hao Liang & Luc Renneboog, Socially Responsible Firms, 122 J. Fin. Econ. 585, 585–91, 596–605 (2016) (arguing that well-governed firms are more engaged in CSR, and there is a positive association between CSR and shareholder value).Show More it is easy to see how a reputation for being socially responsible can help companies sell more products, attract investments, or even get more lenient treatment from regulators. However, just having a good reputation does not mean that CSR policies achieve their putative purpose of helping stakeholders and society at large. Without a mechanism for ensuring that CSR actually benefits the stakeholders, companies can easily use it as a means of “greenwashing.”4 4.“Greenwashing occurs when a corporation increases its sales or boosts its brand image through environmental rhetoric or advertising, but in reality does not make good on these environmental claims.” Miriam A. Cherry, The Law and Economics of Corporate Social Responsibility and Greenwashing, 14 U.C. Davis Bus. L.J. 281, 282 (2013).Show More Greenwashing may be particularly conducive to shareholder value because it promotes a strong reputation and higher sales without actually doing anything substantial for society.5 5.This arguably explains why well-governed firms that are more accountable to their shareholders tend to engage in value-enhancing CSR. See generallyFerrell, Liang & Renneboog, supra note 3. For a similar argument in the context of regulation, see Steven L. Schwarcz, Misalignment: Corporate Risk-Taking and Public Duty, 92 Notre Dame L. Rev. 1, 3–4 (2016) (arguing that regulation designed to align managers’ and investors’ interests does not necessarily help address negative externalities).Show More But—while false signals of doing good may increase shareholder value—those who support companies for their good deeds would presumably be disappointed were the truth to come to light.

The problem is that it is extremely difficult to verify companies’ social impact. Existing measures of social impact tend to be vague, include metrics that are difficult to quantify, and even mix shareholder protection metrics with environmental or societal ones.6 6.This is most obviously manifested in the ESG metrics because they include both (i) governance metrics, which are supposed to increase accountability to shareholders and (ii) social and environmental metrics, which are supposed to measure firms’ contributions to social and environmental objectives.Show More But if measurement is rarely available, how do we know that firms are pursuing social goals effectively?

The legal approach to addressing these questions has been to introduce legal hybrid forms—in particular, the benefit corporation.7 7.See infra Part II.Show More These forms are supposed to communicate to investors, consumers, workers, and society at large that firms’ activities benefit society. To date, as many as thirty-six states, including Delaware, have adopted one or more such legal forms.8 8.B Lab, State by State Status of Legislation, Benefit Corp., http://benefitcorp.net/policy­makers/state-by-state-status? [https://perma.cc/X524-35UE] (last visited Mar. 18, 2020).Show More However, existing legal forms fail to clarify the actual impact of companies’ social goals.9 9.See, e.g., John E. Tyler III, Evan Absher, Kathleen Garman & Anthony Luppino, Purposes, Priorities and Accountability Under Social Business Structures: Resolving Ambiguities and Enhancing Adoption, 19 Advances Entrepreneurship Firm Emergence & Growth 39, 39 (2017) (arguing that “social business models do not meaningfully prioritize or impose accountability to ‘social good’ over other purposes”).Show More Just like CSR, these forms could portray a misleading picture of companies’ social contributions. Many of the companies that adopt these legal forms have little or no discernible social impact.10 10.See Ofer Eldar, The Role of Social Enterprise and Hybrid Organizations, 2017 Colum. Bus. L. Rev. 92, 99 (discussing Laureate University, a for-profit network of universities incorporated as a benefit corporation but that uses aggressive promotional tactics and has low graduation and loan repayment rates); see also Michael B. Dorff, James Hicks & Steven Davidoff Solomon, The Future or Fancy? An Empirical Study of Public Benefit Corporations 46 (Eur. Corp. Governance Inst., Working Paper No. 495, 2020), https://papers.ssrn.com­/sol3/papers.cfm?abstract_id=3433772 [https://perma.cc/D9R8-VZWC]. Dorff et al. list standard firms, such as Ripple Foods, as having incorporated as benefit corporations, even though these firms do not have any clear social impact other than producing goods (such as dairy-free milk) that appeal to certain consumers.Show More And companies that appear to be highly successful in pursuing social missions already had such impact before they adopted the legal forms.11 11.Two such examples include the Greyston Bakery and Patagonia. See Eldar, supra note 10, at 189 n.270.Show More

Why have these forms seemingly failed to generate greater social impact? In this Article, I claim that they suffer from the same underlying problem as CSR policies. These forms are simply not structured in a way that makes companies more likely to pursue social goals effectively. Therefore, the legal forms cannot serve as useful signals to investors or consumers that the firms benefit society in the ways they purport to.

An effective legal form must meet two conditions. First, the form must give firms incentives to pursue social missions effectively. At the very least, the goal of maximizing shareholders’ profits should not interfere with the firm’s social mission. Ideally, the firm should have a financial stake in the accomplishment of the social mission. Second, the firm should have the competence to pursue such missions. Competence is particularly important because social goals, such as unemployment or access to capital, tend to be complex. Accomplishing complex social goals requires the firm to tailor its social programs to the specific attributes and needs of the beneficiaries.

The issues of incentives and competence are very similar to standard issues in corporate governance. Broadly stated, the main goal of corporate governance policy is to ensure that managers have both (i) the incentives to maximize shareholder value and (ii) the competence to make decisions on behalf of the corporation.12 12.See Zohar Goshen & Richard Squire, Principal Costs: A New Theory for Corporate Law and Governance, 117 Colum. L. Rev. 767, 784 (2017) (identifying conflict costs and competence costs as the two main sources of costs that corporate governance is designed to address).Show More What complicates things when it comes to social responsibility is that a firm that purports to pursue CSR not only makes profits on behalf of the investors, but it also serves as a conduit for a subsidy or a donation. As I explain elsewhere, these subsidies or donations need not be direct transfers from the government or donors. In fact, they are usually latent in the sense that they reflect premium prices paid by consumers or below-market returns from investors.13 13.Eldar, supra note 10, at 104–05.Show More

For policy makers, the main design issue is how to assure those who provide subsidy-donations that they will be used effectively. Thus, the principal goal of this Article is to develop a legal form with key structural elements that give managers the incentives and competence to accomplish this. This form can signal to stakeholders that firms professing to promote social impact actually do what they claim.

The policy I propose is modeled on the structural elements found in social enterprises that transact with their beneficiaries (e.g., as consumers or workers), which I have addressed in previous work.14 14.See id.; see also Ofer Eldar, The Organization of Social Enterprises: Transacting Versus Giving 10–15 (July 27, 2018) (unpublished paper), https://papers.ssrn.com/sol3/papers.­cfm?abstract_id=3217663 [https://perma.cc/S36D-3LWP].Show More The transactional relationship with its beneficiaries gives the firm a stake in helping them develop, and also enables the firm to observe beneficiaries’ abilities and needs. Thus, such firms have both the incentives and competence to serve certain social goals. The proposal builds on the regulatory regime for community development financial institutions (CDFIs), which certifies financial institutions as firms that serve low-income populations,15 15.The CDFI regime is currently limited to low-income borrowers, but it could be extended to a wider class of beneficiaries, and extended beyond the U.S.Show More and combines this regime with certain elements found in benefit corporations.16 16.Specifically, as in benefit corporations, a qualified majority voting is required to change the mission of the firm. See infra text accompanying note 111.Show More

In essence, the proposal is to introduce a new social enterprise (SE) legal form. Firms organized under the SE legal form would be required to obtain a government certification as a “Social Enterprise” if they commit, in their charters, to transacting with one or more carefully defined classes of beneficiaries. These beneficiaries may include, among others, workers, borrowers, and consumers. Beneficiaries will be divided into different classes in accordance with certain criteria of need (e.g., level of income). To maintain the certification, firms must commit to having a minimum percentage of their business associated with beneficiary transactions. Whereas current benefit corporation laws permit companies to choose a third-party standard that measures their social purpose,17 17.The MBCL provides criteria for third-party standards, but companies have discretion to select how their performance will be measured. See infra Part II.Show More my proposed reform would require companies to adhere to one federal standard defined by a single federal certifier.

The main goal of this proposed policy is to facilitate the flow of subsidized capital and income to social enterprises. This legal form is necessary to attract subsidies from dispersed subsidy-providers, such as investors and consumers. Currently, investors and consumers mainly rely on costly contractual and ownership mechanisms to ensure that relevant firms transact with their beneficiaries. Under the proposed system, investors and consumers would have notice that the firm transacts with beneficiaries before they purchase shares or products. In this respect, the proposed law would be to altruistic investors and consumers essentially what the nonprofit form is to donors.18 18.The nonprofit form assures donors that the managers of donative organizations have limited incentives to expropriate the subsidy-donations; hence, they are more likely to distribute donations to the intended beneficiaries. Henry B. Hansmann, The Role of Nonprofit Enterprise, 89 Yale L.J. 835, 838–39 (1980). Similarly, the proposed legal form would assure investors and consumers that the firm has incentives to use subsidies effectively.Show More Thus, the proposal is likely to unlock much-needed capital to scale social enterprises and increase social impact.

The ability of the SE legal form to source subsidies from a wider range of subsidy-providers could serve two additional complementary objectives. First, it could help facilitate the process for allocating subsidized investments (known as program-related investments or “PRIs”) from foundations. While most policy initiatives seek to attract institutional shareholder investment to channel capital for social goals, the best candidates for investing in social impact are foundations. The reason is that they have vast amounts of capital that they are supposed to employ to further philanthropic goals.19 19.See, e.g., Matt Onek, Philanthropic Pioneers: Foundations and the Rise of Impact Investing, Stan. Soc. Innovation Rev. (Jan. 17, 2017) https://ssir.org/articles/entry/­philanthropic_pioneers_foundations_and_the_rise_of_impact_investing# [https://perma.cc/­MJ7A-52Q8].Show More Paradoxically, foundations often resist making PRIs in for-profit social enterprises because such investments could expose them to tax penalties if they cannot verify the social mission of their investees. Currently, such verification is cumbersome and subject to legal uncertainty. Thus, making certified firms eligible for PRIs would facilitate the process for allocating such investments.

Second, more ambitiously, the proposal has the potential to meet a long-awaited goal of social entrepreneurs: facilitating their access to capital markets. The inability of social enterprises to tap into capital markets substantially burdens their ability to grow and increase their social impact. Attempts to establish social exchanges for firms that combine profit and missions have largely been futile, primarily due to the difficulties of measuring social impact. A new legal form could help by providing adequate assurance to the investors who are expected to subsidize such impact.

One objection to this proposal might be that a legal hybrid form based solely on firms’ transactional relationships with their beneficiaries is overly reductive or too narrow. Should a legal hybrid form not capture the universe of social missions, such as the protection of the environment, diversity, and human rights? These objectives are indeed laudable, but it does not follow that legal forms can adequately address them. In the absence of credible certification mechanisms and clear metrics of social impact, legal forms for organizations with broad social purposes are not likely to signal that these firms pursue social missions effectively. Furthermore, the class of organizations that transact with disadvantaged persons is large and highly consequential.20 20.For example, they range from microfinance institutions to firms that provide eyeglasses in developing countries.Show More Concentrating on these firms could transform legal hybrid forms from a marginal phenomenon to a remarkable vehicle for promoting development.

This Article proceeds as follows: Part I describes how legal hybrid forms are supposed to serve as a commitment device to potential subsidy providers and explains why a new form is necessary to facilitate the formation of social enterprises. Part II critically evaluates the principal existing legal forms for companies with a social purpose and explains why they fail to serve as adequate commitment devices. Part III discusses the key elements of the CDFI regime and why other certification mechanisms do not work as well. Part IV proposes a design for a new legal form for social enterprises and discusses its principal elements in detail. Part V discusses the design of possible government subsidies for the proposed legal hybrid form.

  1. * Duke University School of Law; Duke Innovation and Entrepreneurship Initiative. I thank Richard Brooks, Jamie Boyle, John Coyle, Elisabeth De Fontenay, Brian Galle, Henry Hansmann, Yair Listokin, Richard Schmalbeck, Steven Schwarcz, Michael Simkovic, Emily Strauss, Rory Van Loo, Andrew Verstein, and participants in seminars at Duke University School of Law and Boston University School of Law for helpful comments and suggestions. I am also grateful to Heather Cron, Zach Lankford, Renuka Medury, Kelsey Moore, Catherine Prater, and Hadar Tanne for excellent research assistance. Email: eldar@law.duke.edu. ↑
  2. Letter from Larry Fink, Chairman & Chief Exec. Officer, Blackrock, to CEOs (2018), https://www.blackrock.com/corporate/investor-relations/2018-larry-fink-ceo-letter [https://­perma.cc/7QRQ-9DG6]. For a similar statement by Martin Lipton, the renowned legal advisor for public corporations, see Martin Lipton et al., The New Paradigm: A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors To Achieve Sustainable Long-Term Investment and Growth, Harv. L. Sch. F. on Corp. Governance (Jan. 11, 2017), https://corpgov.law.harvard.edu/2017/01/11/corporate-governance-the-new-para­digm/ [https://perma.cc/B5AJ-EWNW]. ↑
  3. See generally Oliver Hart & Luigi Zingales, Companies Should Maximize Shareholder Welfare Not Market Value, 2 J.L. Fin. & Acct. 247 (2017) (arguing that company and asset managers should pursue policies consistent with the non-pecuniary preferences of their investors). ↑
  4. Compare Ronald W. Masulis & Syed Walid Reza, Agency Problems of Corporate Philanthropy, 28 Rev. Fin. Stud. 592, 619–21 (2015) (claiming that corporate donations advance CEO interests and reduce firm value), with Allen Ferrell, Hao Liang & Luc Renneboog, Socially Responsible Firms, 122 J. Fin. Econ. 585, 585–91, 596–605 (2016) (arguing that well-governed firms are more engaged in CSR, and there is a positive association between CSR and shareholder value). ↑
  5. “Greenwashing occurs when a corporation increases its sales or boosts its brand image through environmental rhetoric or advertising, but in reality does not make good on these environmental claims.” Miriam A. Cherry, The Law and Economics of Corporate Social Responsibility and Greenwashing, 14 U.C. Davis Bus. L.J. 281, 282 (2013). ↑
  6. This arguably explains why well-governed firms that are more accountable to their shareholders tend to engage in value-enhancing CSR. See generally Ferrell, Liang & Renneboog, supra note 3. For a similar argument in the context of regulation, see Steven L. Schwarcz, Misalignment: Corporate Risk-Taking and Public Duty, 92 Notre Dame L. Rev. 1, 3–4 (2016) (arguing that regulation designed to align managers’ and investors’ interests does not necessarily help address negative externalities). ↑
  7. This is most obviously manifested in the ESG metrics because they include both (i) governance metrics, which are supposed to increase accountability to shareholders and (ii) social and environmental metrics, which are supposed to measure firms’ contributions to social and environmental objectives. ↑
  8. See infra Part II. ↑
  9. B Lab, State by State Status of Legislation, Benefit Corp., http://benefitcorp.net/policy­makers/state-by-state-status? [https://perma.cc/X524-35UE] (last visited Mar. 18, 2020). ↑
  10. See, e.g., John E. Tyler III, Evan Absher, Kathleen Garman & Anthony Luppino, Purposes, Priorities and Accountability Under Social Business Structures: Resolving Ambiguities and Enhancing Adoption, 19 Advances Entrepreneurship Firm Emergence & Growth 39, 39 (2017) (arguing that “social business models do not meaningfully prioritize or impose accountability to ‘social good’ over other purposes”). ↑
  11. See Ofer Eldar, The Role of Social Enterprise and Hybrid Organizations, 2017 Colum. Bus. L. Rev. 92, 99 (discussing Laureate University, a for-profit network of universities incorporated as a benefit corporation but that uses aggressive promotional tactics and has low graduation and loan repayment rates); see also Michael B. Dorff, James Hicks & Steven Davidoff Solomon, The Future or Fancy? An Empirical Study of Public Benefit Corporations 46 (Eur. Corp. Governance Inst., Working Paper No. 495, 2020), https://papers.ssrn.com­/sol3/papers.cfm?abstract_id=3433772 [https://perma.cc/D9R8-VZWC]. Dorff et al. list standard firms, such as Ripple Foods, as having incorporated as benefit corporations, even though these firms do not have any clear social impact other than producing goods (such as dairy-free milk) that appeal to certain consumers. ↑
  12. Two such examples include the Greyston Bakery and Patagonia. See Eldar, supra note 10, at 189 n.270. ↑
  13. See Zohar Goshen & Richard Squire, Principal Costs: A New Theory for Corporate Law and Governance, 117 Colum. L. Rev. 767, 784 (2017) (identifying conflict costs and competence costs as the two main sources of costs that corporate governance is designed to address). ↑
  14. Eldar, supra note 10, at 104–05. ↑
  15. See id.; see also Ofer Eldar, The Organization of Social Enterprises: Transacting Versus Giving 10–15 (July 27, 2018) (unpublished paper), https://papers.ssrn.com/sol3/papers.­cfm?abstract_id=3217663 [https://perma.cc/S36D-3LWP]. ↑
  16. The CDFI regime is currently limited to low-income borrowers, but it could be extended to a wider class of beneficiaries, and extended beyond the U.S. ↑
  17. Specifically, as in benefit corporations, a qualified majority voting is required to change the mission of the firm. See infra text accompanying note 111. ↑
  18. The MBCL provides criteria for third-party standards, but companies have discretion to select how their performance will be measured. See infra Part II. ↑
  19. The nonprofit form assures donors that the managers of donative organizations have limited incentives to expropriate the subsidy-donations; hence, they are more likely to distribute donations to the intended beneficiaries. Henry B. Hansmann, The Role of Nonprofit Enterprise, 89 Yale L.J. 835, 838–39 (1980). Similarly, the proposed legal form would assure investors and consumers that the firm has incentives to use subsidies effectively. ↑
  20. See, e.g., Matt Onek, Philanthropic Pioneers: Foundations and the Rise of Impact Investing, Stan. Soc. Innovation Rev. (Jan. 17, 2017) https://ssir.org/articles/entry/­philanthropic_pioneers_foundations_and_the_rise_of_impact_investing# [https://perma.cc/­MJ7A-52Q8]. ↑
  21. For example, they range from microfinance institutions to firms that provide eyeglasses in developing countries. ↑

Manipulating Opportunity

Concerns about online manipulation have centered on fears about undermining the autonomy of consumers and citizens. What has been overlooked is the risk that the same techniques of personalizing information online can also threaten equality. When predictive algorithms are used to allocate information about opportunities like employment, housing, and credit, they can reproduce past patterns of discrimination and exclusion in these markets. This Article explores these issues by focusing on the labor market, which is increasingly dominated by tech intermediaries. These platforms rely on predictive algorithms to distribute information about job openings, match job seekers with hiring firms, or recruit passive candidates. Because algorithms are built by analyzing data about past behavior, their predictions about who will make a good match for which jobs will likely reflect existing occupational segregation and inequality. When tech intermediaries cause discriminatory effects, they may be liable under Title VII, and Section 230 of the Communications Decency Act should not bar such actions. However, because of the practical challenges that litigants face in identifying and proving liability retrospectively, a more effective approach to preventing discriminatory effects should focus on regulatory oversight to ensure the fairness of algorithmic systems.

I. Introduction

Our online experiences are increasingly personalized. Facebook and Google micro-target advertisements aimed to meet our immediate needs. Amazon, Netflix, and Spotify offer up books, movies, and music tailored to match our tastes. Our news feeds are populated with stories intended to appeal to our particular interests and biases. This drive toward increasing personalization is powered by complex machine learning algorithms built to discern our preferences and anticipate our behavior. Personalization offers benefits because companies can efficiently offer consumers the precise products and services they desire.

Online personalization, however, has come under considerable criticism lately. Shoshana Zuboff assails our current economic system, which is built on companies amassing and exploiting ever more detailed personal information.1 1.Shoshana Zuboff, The Age of Surveillance Capitalism: The Fight for a Human Future at the New Frontier of Power 8–11 (2019).Show More Ryan Calo and Tal Zarsky explain that firms are applying the insights of behavioral science to manipulate consumers by exploiting their psychological or emotional vulnerabilities.2 2.SeeRyan Calo, Digital Market Manipulation, 82 Geo. Wash. L. Rev. 995, 996, 999 (2014); Tal Z. Zarsky, Privacy and Manipulation in the Digital Age, 20 Theoretical Inquiries L. 157, 158, 160–61 (2019).Show More Daniel Susser, Beate Roessler, and Helen Nissenbaum describe how information technology is enabling manipulative practices on a massive scale.3 3.Daniel Susser, Beate Roessler & Helen Nissenbaum, Online Manipulation: Hidden Influences in a Digital World, 4 Geo. L. Tech. Rev. 1, 2, 10 (2019).Show More Julie Cohen similarly argues that “[p]latform-based, massively-intermediated processes of search and social networking are inherently processes of market manipulation.”4 4.Julie E. Cohen, Law for the Platform Economy, 51 U.C. Davis L. Rev. 133, 165 (2017); see also Julie E. Cohen, Between Truth and Power: The Legal Constructions of Informational Capitalism 75–77, 83–89, 96 (2019) (describing how techniques for behavioral surveillance and micro-targeting contribute to social harms such as polarization and extremism).Show More In the political sphere as well, concerns have been raised about manipulation, with warnings that news personalization is creating “filter bubble[s]” and increasing polarization.5 5.See, e.g., Eli Pariser, The Filter Bubble: What the Internet Is Hiding from You 13–14 (2011); Michael J. Abramowitz, Stop the Manipulation of Democracy Online, N.Y. Times (Dec. 11, 2017), https://www.nytimes.com/2017/12/11/opinion/fake-news-russia-kenya.html [https://perma.cc/9YWF-PED7]; James Doubek, How Disinformation and Distortions on Social Media Affected Elections Worldwide, NPR (Nov. 16, 2017, 2:28 PM), https://www.npr.org­/sections/alltechconsidered/2017/11/16/564542100/how-disinformation-and-distortions-on-social-media-affected-elections-worldwide [https://perma.cc/ZJ97-GQ SZ]; Jon Keegan, Blue Feed, Red Feed: See Liberal Facebook and Conservative Facebook, Side by Side, Wall St. J. (Aug. 19, 2019), http://graphics.wsj.com/blue-feed-red-feed/ [https://perma.cc/GJA8-4U9W].Show More These issues were highlighted by revelations that Cambridge Analytica sent personalized ads based on psychological profiles of eighty-seven million Facebook users in an effort to influence the 2016 presidential election.6 6.Carole Cadwalladr & Emma Graham-Harrison, Revealed: 50 Million Facebook Profiles Harvested for Cambridge Analytica in Major Data Breach,Guardian (Mar. 17, 2018, 6:03 PM), https://www.theguardian.com/news/2018/mar/17/cambridge-analytica-facebook-influ­ence-us-election [https://perma.cc/72CR-9Y8K]; Alex Hern, Cambridge Analytica: How Did It Turn Clicks into Votes?, Guardian (May 6, 2018, 3:00 AM), https://www.theguardian.com/­news/2018/may/06/cambridge-analytica-how-turn-clicks-into-votes-christopher-wylie [https://perma.cc/AD8H-PF3M]; Matthew Rosenberg, Nicholas Confessore & Carole Cadwalladr, How Trump Consultants Exploited the Facebook Data of Millions, N.Y. Times (Mar. 17, 2018), https://www.nytimes.com/2018/03/17/us/politics/cambridge-analytica-trump-campaign.html [https://perma.cc/3WYQ-3YKP].Show More The extensive criticism of personalization is driven by concerns that online manipulation undermines personal autonomy and compromises rational decision making.

Largely overlooked in these discussions is the possibility that online manipulation also threatens equality. Online platforms increasingly operate as key intermediaries in the markets for employment, housing, and financial services—what I refer to as opportunity markets. Predictive algorithms are also used in these markets to segment the audience and determine precisely what information will be delivered to which users. The risk is that in doing so, these intermediaries will direct opportunities in ways that reproduce or reinforce historical forms of discrimination. Predictive algorithms are built by observing past patterns of behavior, and one of the enduring patterns in American economic life is the unequal distribution of opportunities along the lines of race, gender, and other personal characteristics. As a result, these systems are likely to distribute information about future opportunities in ways that reflect existing inequalities and may reinforce historical patterns of disadvantage.

The way in which information about opportunities is distributed matters, because these markets provide access to resources that are critical for human flourishing and well-being. In that sense, access to them is foundational. People need jobs and housing before they can act as consumers or voters. They need access to financial services in order to function in the modern economy. Of course, many other factors contribute to inequality, such as unequal educational resources, lack of access to health care, and over-policing in certain communities. Decisions by landlords, employers, or banks can also contribute to inequality. Tech intermediaries are thus just one part of a much larger picture. Nevertheless, they will be an increasingly important part as more and more transactions are mediated online.7 7.See, e.g., Miranda Bogen & Aaron Rieke, Help Wanted: An Examination of Hiring Algorithms, Equity, and Bias 5–6 (2018) (describing the role of platforms in the hiring process); Geoff Boeing, Online Rental Housing Market Representation and the Digital Reproduction of Urban Inequality, 52 Env’t & Plan. A 449, 450 (2019) (documenting the growing impact of Internet platforms in shaping the rental housing market).Show More Because they control access to information about opportunities, they have the potential to significantly impact how these markets operate.

Online intermediaries have unprecedented potential to finely calibrate the distribution of information. In the past, traditional print or broadcast media might aim at a particular audience, but they could not prevent any particular individual from accessing information that they published. And if an advertiser tried to signal its interest in only a particular group—as has happened with real estate ads that used code words or featured only white models—the attempts at exclusion were plainly visible. In contrast, online intermediaries have the ability to precisely target an audience, selecting some users to receive information and others to be excluded in ways that are not at all transparent.

The issue is illustrated by Facebook’s ad-targeting tools. Several lawsuits alleged that employers or landlords could use the company’s tools to exclude users on the basis of race, gender, or age from their audience.8 8.See infra Section II.B.Show More To a large extent, these concerns were resolved by a recent settlement in which Facebook agreed to bar the use of sensitive demographic variables to target employment, housing, and credit advertisements.9 9.See Galen Sherwin & Esha Bhandari, Facebook Settles Civil Rights Cases by Making Sweeping Changes to Its Online Ad Platform, ACLU (Mar. 19, 2019, 2:00 PM), https://www.aclu.org/blog/womens-rights/womens-rights-workplace/facebook-settles-civil-rights-cases-making-sweeping [https://perma.cc/H6D6-UMJ4].Show More However, the settlement failed to address another potential source of bias—Facebook’s ad-delivery algorithm, which determines which users within a targeted audience actually receive an ad. As explained below, even if an advertiser uses neutral targeting criteria and intends to reach a diverse audience, an ad-targeting algorithm may distribute information about opportunities in a biased way.10 10.See infra Section II.C.Show More This is an example of a much broader concern—namely, that when predictive algorithms are used to allocate access to opportunities, there is a significant risk that they will do so in a way that reproduces existing patterns of inequality and disadvantage.

Concerns about the distributive effects of predictive algorithms are relevant to all kinds of opportunity markets, including for housing, employment, and basic financial services. Each of these markets operates somewhat differently and is regulated under different laws. They deserve separate attention and more detailed consideration than can be provided here. This Article focuses on the labor market and the relevant laws regulating it; however, the issues it raises likely plague other opportunity markets as well.

Examining employment practices reveals dramatic change. Just a couple of decades ago, employers had a handful of available strategies for recruiting new workers, such as advertising in newspapers or hiring through an employment agency. Today, firms increasingly rely on tech intermediaries to fill job openings.11 11.See Bogen & Rieke, supra note 7, at 5–6.Show More Recent surveys suggest that somewhere from 84% to 93% of job recruiters use online strategies to find potential employees.12 12.Soc’y for Human Res. Mgmt., SHRM Survey Findings: Using Social Media for Talent Acquisition—Recruitment and Screening 3 (Jan. 7, 2016), https://www.shrm.org/hr-today/trends-and-forecasting/research-and-surveys/Documents/SHRM-Social-Media-Recruiting-Screening-2015.pdf [https://perma.cc/L6NT-N4KL]. The Society for Human Resource Management conducts biennial surveys of job recruiters. The surveys demonstrated an increase in the use of online recruiting by employers, rising from fifty-six percent in 2011 to seventy-seven percent in 2013 to eighty-four percent in 2015.Id.; Soc’y for Human Res. Mgmt., SHRM Survey Findings: Social Networking Websites and Recruiting/Selection 2 (Apr. 11, 2013), https://www.shrm.org/hr-today/trends-and-forecasting/research-and-sur­veys/Pages/shrm-social-networking-websites-recruiting-job-candidates.aspx [https://perma.cc/U4HN-E7U7]; see also Jobvite’s New 2015 Recruiter Nation Survey Reveals Talent Crunch, Jobvite (Sept. 22, 2015), https://www.jobvite.com/news_item/­jobvites-new-2015-recruiter-nation-survey-reveals-talent-crunch-95-recruiters-anticipate-similar-increased-competition-skilled-workers-coming-year-86-expect-exp/ [https://perma.cc /H66S-8E5Z] (stating that 92% of recruiters use social media to discover or evaluate candidates).Show More Employers distribute information about positions through social media. They also rely on specialized job platforms like ZipRecruiter, LinkedIn, and Monster to recruit applicants and recommend the strongest candidates.13 13.See Bogen & Rieke, supra note 7, at 5, 19–20, 24.Show More In addition, passive recruiting—using data to identify workers who are not actively looking for another position—is a growing strategy for recruiting new talent.14 14.Id. at 22.Show More

The use of algorithms and artificial intelligence in the hiring process has not gone unnoticed. Numerous commenters and scholars have described how employers are using automated decision systems and have raised concerns that these developments may cause discrimination or threaten employee privacy.15 15.See, e.g., Ifeoma Ajunwa, Kate Crawford & Jason Schultz, Limitless Worker Surveillance, 105 Calif. L. Rev. 735, 738–39 (2017); Ifeoma Ajunwa, The Paradox of Automation as Anti-Bias Intervention, 41 Cardozo L. Rev. (forthcoming 2020) (manuscript at 14) (on file with author); Richard A. Bales & Katherine V.W. Stone, The Invisible Web of Work: Artificial Intelligence and Electronic Surveillance in the Workplace, 41 Berkeley J. Lab. & Emp. L. (forthcoming 2020) (manuscript at 3) (on file with author); Solon Barocas & Andrew D. Selbst, Big Data’s Disparate Impact, 104 Calif. L. Rev. 671, 673–75 (2016); Matthew T. Bodie, Miriam A. Cherry, Marcia L. McCormick & Jintong Tang, The Law and Policy of People Analytics, 88 U. Colo. L. Rev. 961, 989–92 (2017); James Grimmelmann & Daniel Westreich, Incomprehensible Discrimination, 7 Calif. L. Rev. Online 164, 170–72, 176–77 (2017); Jeffrey M. Hirsch, Future Work, 2020 U. Ill. L. Rev. (forthcoming 2020) (manuscript at 3) (on file with author); Pauline T. Kim, Data-Driven Discrimination at Work, 58 Wm. & Mary L. Rev. 857, 860–61 (2017) [hereinafter Kim, Data-Driven Discrimination at Work]; Pauline T. Kim, Data Mining and the Challenges of Protecting Employee Privacy Under U.S. Law, 40 Comp. Lab. L. & Pol’y J. 405, 406 (2019); Pauline T. Kim & Erika Hanson, People Analytics and the Regulation of Information Under the Fair Credit Reporting Act, 61 St. Louis U. L.J. 17, 18–19 (2016); Charles A. Sullivan, Employing AI, 63 Vill. L. Rev. 395, 396 (2018).Show More However, previous work has focused on whether employers can or should be held liable when they use predictive algorithms or other artificial intelligence tools to make personnel decisions. What is missing from this literature is close scrutiny of how tech intermediaries are shaping labor markets and the implications for equality.

This Article undertakes that analysis, arguing that the use of predictive algorithms by labor market intermediaries risks reinforcing or even worsening existing patterns of inequality and that these intermediaries should be accountable for those effects. A number of studies have documented instances of biased delivery of employment ads.16 16.See infra Section II.C.Show More Although the exact mechanism is unclear, it should not be surprising that predictive algorithms distribute information about job opportunities in biased ways. These algorithms are built by analyzing existing data, and one of the most persistent facts of the U.S. labor market is ongoing occupational segregation along the lines of race and gender.17 17.See infra Section II.D.Show More If predictions are based solely on observations about past behavior—without regard to what social forces shaped that behavior—then they are likely to reproduce those patterns.

Tech intermediaries may not intend to cause discriminatory effects, but they are nevertheless responsible for them.18 18.Building predictive models involves numerous choices, many of them implicating value judgments. See, e.g., Barocas & Selbst, supra note 15, at 674; Margot E. Kaminski, Binary Governance: Lessons from the GDPR’s Approach to Algorithmic Accountability, 92 S. Cal. L. Rev. 1529, 1539 (2019); David Lehr & Paul Ohm, Playing with the Data: What Legal Scholars Should Learn About Machine Learning, 51 U.C. Davis L. Rev. 653, 703–04 (2017); Andrew D. Selbst & Solon Barocas, The Intuitive Appeal of Explainable Machines, 87 Fordham L. Rev. 1085, 1130–31 (2018).Show More They make choices when designing the algorithms that distribute information about job opportunities or suggest the best matches for job seekers and hiring firms. In doing so, they decide what goals to optimize—typically revenue—and those choices influence how information is channeled, making some opportunities visible and obscuring others. Thus, these technologies shape how the market participants—both workers and employers—perceive their available options and thereby also influence their behavior.19 19.Karen Levy and Solon Barocas have explored how the design choices made by platforms “can both mitigate and aggravate bias.” Karen Levy & Solon Barocas, Designing Against Discrimination in Online Markets, 32 Berkeley Tech. L.J. 1183, 1185 (2017). The focus of their analysis is on user bias in online markets like ride matching, consumer-to-consumer sales, short-term rentals, and dating. Id. at 1189–90. Because the design choices platforms make will structure users’ interactions with one another, these choices influence behavior, affecting whether or to what extent users can act on explicit or implicit biases. Levy and Barocas review multiple platforms across domains and develop a taxonomy of policy and design elements that have been used to address the risks of bias. Although the focus of this Article is on the impact of predictive algorithms rather than user bias, the issues are obviously interrelated. Past bias by users can cause predictive algorithms to discriminate. Conversely, algorithmic outputs in the form of recommendations or rankings can activate or exacerbate implicit user biases. To that extent, some, but not all, of the strategies they identify may be relevant to addressing bias in online opportunity markets.Show More When these intermediaries structure access to opportunities in ways that reflect historical patterns of discrimination and exclusion, they pose a threat to workplace equality. Even if the discriminatory effects are unintentional, the harm to workers can be real. Employment discrimination law has long targeted discriminatory effects, not just invidious motivation.20 20.See Griggs v. Duke Power Co., 401 U.S. 424, 431 (1971).Show More

The risk that tech intermediaries will contribute to workplace inequality poses a number of challenges for the law. Discrimination law has largely focused on employers, examining their decisions and practices for discriminatory intent or impact. However, if bias affects how potential applicants are screened out before they even interact with a hiring firm, then focusing on employer behavior will be inadequate to dismantle patterns of occupational segregation. Holding tech intermediaries directly responsible for their effects on labor markets, however, will raise a different set of challenges. Some of these are legal, such as whether existing law reaches these types of intermediaries,21 21.See infra Part III.Show More and whether they can avoid liability by relying on Section 230 of the Communications Decency Act (CDA),22 22.47 U.S.C. § 230 (2012).Show More which gives websites a defense to some types of liability. Other obstacles are more practical in nature, which suggests that preventing discriminatory effects may require alternative strategies.23 23.See infra Section IV.B.Show More

This Article proceeds as follows. Part II first explores the role that tech intermediaries play in the labor market and how targeting tools can be misused for discriminatory purposes. It next explains that even if employers are no longer permitted to use discriminatory targeting criteria, a significant risk remains that platforms’ predictive algorithms will distribute access to opportunities in ways that reproduce existing patterns of inequality. Because tech intermediaries have a great deal of power to influence labor market interactions, and may do so in ways that are not transparent, I argue in Part II that they should bear responsibility when they cause discriminatory effects.

Parts III and IV consider the relevant legal landscape. Part III discusses how the growing importance of tech intermediaries in the labor market poses challenges for existing anti-discrimination law. It first shows how the question “who is an applicant?”—an issue critical for finding employer liability—is complicated as platforms increasingly mediate job seekers’ interactions with firms. It then explores the possibilities for holding these intermediaries directly liable under existing employment discrimination law, either as employment agencies or for interfering with third party employment relationships. Part IV considers some obstacles to holding tech intermediaries liable for their discriminatory labor market effects. Section IV.A examines and rejects the argument that Section 230 of the Communications Decency Act would automatically bar such claims. Section IV.B explains that significant practical obstacles remain, suggesting that a post hoc liability regime may not be the best way to prevent discriminatory harms. Thus, Section IV.B also argues that we should look to regulatory models in order to minimize the risks of discrimination from the use of predictive algorithms.

  1. * Daniel Noyes Kirby Professor of Law, Washington University School of Law, St. Louis, Missouri. I am grateful to Victoria Schwarz, Miranda Bogen, Aaron Riecke, Greg Magarian, Neil Richards, Peggie Smith, Dan Epps, John Inazu, Danielle Citron, Ryan Calo, Andrew Selbst, Margot Kaminski, and Felix Wu for helpful comments on earlier drafts of this Article. I also benefited from feedback from participants at the 2019 Privacy Law Scholar’s Conference, Washington University School of Law’s faculty workshop, and Texas A&M School of Law’s Faculty Speaker Series. Many thanks to Adam Hall, Theanne Liu, Joseph Tomchak, and Samuel Levy for outstanding research assistance. ↑
  2. Shoshana Zuboff, The Age of Surveillance Capitalism: The Fight for a Human Future at the New Frontier of Power 8–11 (2019). ↑
  3. See Ryan Calo, Digital Market Manipulation, 82 Geo. Wash. L. Rev. 995, 996, 999 (2014); Tal Z. Zarsky, Privacy and Manipulation in the Digital Age, 20 Theoretical Inquiries L. 157, 158, 160–61 (2019). ↑
  4. Daniel Susser, Beate Roessler & Helen Nissenbaum, Online Manipulation: Hidden Influences in a Digital World, 4 Geo. L. Tech. Rev. 1, 2, 10 (2019). ↑
  5. Julie E. Cohen, Law for the Platform Economy, 51 U.C. Davis L. Rev.
    133, 165 (2017)

    ; see also Julie E. Cohen, Between Truth and Power: The Legal Constructions of Informational Capitalism 75–77, 83–89, 96 (2019) (describing how techniques for behavioral surveillance and micro-targeting contribute to social harms such as polarization and extremism). ↑

  6. See, e.g., Eli Pariser, The Filter Bubble: What the Internet Is Hiding from You 13–14 (2011); Michael J. Abramowitz, Stop the Manipulation of Democracy Online, N.Y. Times (Dec. 11, 2017), https://www.nytimes.com/2017/12/11/opinion/fake-news-russia-kenya.html [https://perma.cc/9YWF-PED7]; James Doubek, How Disinformation and Distortions
    on Social Media Affected Elections Worldwide, NPR (Nov. 16, 2017, 2:28 PM), https://www.npr.org­/sections/alltechconsidered/2017/11/16/564542100/how-disinformation-and-distortions-on-social-media-affected-elections-worldwide [https://perma.cc/ZJ97-GQ SZ]; Jon Keegan, Blue Feed, Red Feed: See Liberal Facebook and Conservative Facebook, Side by Side, Wall St. J. (Aug. 19, 2019), http://graphics.wsj.com/blue-feed-red-feed/ [https://perma.cc/GJA8-4U9W]. ↑
  7. Carole Cadwalladr & Emma Graham-Harrison, Revealed: 50 Million Facebook Profiles Harvested for Cambridge Analytica in Major Data Breach, Guardian (Mar. 17, 2018, 6:03 PM), https://www.theguardian.com/news/2018/mar/17/cambridge-analytica-facebook-influ­ence-us-election [https://perma.cc/72CR-9Y8K]; Alex Hern, Cambridge Analytica: How Did It Turn Clicks into Votes?, Guardian (May 6, 2018, 3:00 AM), https://www.theguardian.com/­news/2018/may/06/cambridge-analytica-how-turn-clicks-into-votes-christopher-wylie [https://perma.cc/AD8H-PF3M]; Matthew Rosenberg, Nicholas Confessore & Carole Cadwalladr, How Trump Consultants Exploited the Facebook Data of Millions, N.Y. Times (Mar. 17, 2018), https://www.nytimes.com/2018/03/17/us/politics/cambridge-analytica-trump-campaign.html [https://perma.cc/3WYQ-3YKP]. ↑
  8. See, e.g., Miranda Bogen & Aaron Rieke, Help Wanted: An Examination of Hiring Algorithms, Equity, and Bias 5–6 (2018) (describing the role of platforms in the hiring process); Geoff Boeing, Online Rental Housing Market Representation and the Digital Reproduction of Urban Inequality, 52 Env’t & Plan. A 449, 450 (2019) (documenting the growing impact of Internet platforms in shaping the rental housing market). ↑
  9. See infra Section II.B. ↑
  10.  See Galen Sherwin & Esha Bhandari, Facebook Settles Civil Rights Cases by Making Sweeping Changes to Its Online Ad Platform, ACLU (Mar. 19, 2019, 2:00 PM), https://www.aclu.org/blog/womens-rights/womens-rights-workplace/facebook-settles-civil-rights-cases-making-sweeping [https://perma.cc/H6D6-UMJ4]. ↑
  11. See infra Section II.C. ↑
  12. See Bogen & Rieke, supra note 7, at 5–6. ↑
  13. Soc’y for Human Res. Mgmt., SHRM Survey Findings: Using Social Media for Talent Acquisition—Recruitment and Screening 3 (Jan. 7, 2016), https://www.shrm.org/hr-today/trends-and-forecasting/research-and-surveys/Documents/SHRM-Social-Media-Recruiting-Screening-2015.pdf [https://perma.cc/L6NT-N4KL]. The Society for Human Resource Management conducts biennial surveys of job recruiters. The surveys demonstrated an increase in the use of online recruiting by employers, rising from fifty-six percent in 2011 to seventy-seven percent in 2013 to eighty-four percent in 2015. Id.; Soc’y for Human Res. Mgmt., SHRM Survey Findings: Social Networking Websites and Recruiting/Selection 2 (Apr. 11, 2013), https://www.shrm.org/hr-today/trends-and-forecasting/research-and-sur­veys/Pages/shrm-social-networking-websites-recruiting-job-candidates.aspx [https://perma.cc/U4HN-E7U7]; see also Jobvite’s New 2015 Recruiter Nation Survey Reveals Talent Crunch, Jobvite (Sept. 22, 2015), https://www.jobvite.com/news_item/­jobvites-new-2015-recruiter-nation-survey-reveals-talent-crunch-95-recruiters-anticipate-similar-increased-competition-skilled-workers-coming-year-86-expect-exp/ [https://perma.cc /H66S-8E5Z] (stating that 92% of recruiters use social media to discover or evaluate candidates). ↑
  14. See Bogen & Rieke, supra note 7, at 5, 19–20, 24. ↑
  15. Id. at 22. ↑
  16.  See, e.g., Ifeoma Ajunwa, Kate Crawford & Jason Schultz, Limitless Worker Surveillance, 105 Calif. L. Rev. 735, 738–39 (2017); Ifeoma Ajunwa, The Paradox of Automation as Anti-Bias Intervention, 41 Cardozo L. Rev. (forthcoming 2020) (manuscript at 14) (on file with author); Richard A. Bales & Katherine V.W. Stone, The Invisible Web of Work: Artificial Intelligence and Electronic Surveillance in the Workplace, 41 Berkeley J. Lab. & Emp. L. (forthcoming 2020) (manuscript at 3) (on file with author); Solon Barocas & Andrew D. Selbst, Big Data’s Disparate Impact, 104 Calif. L. Rev. 671, 673–75 (2016); Matthew T. Bodie, Miriam A. Cherry, Marcia L. McCormick & Jintong Tang, The Law and Policy of People Analytics, 88 U. Colo. L. Rev. 961, 989–92 (2017); James Grimmelmann & Daniel Westreich, Incomprehensible Discrimination, 7 Calif. L. Rev. Online 164, 170–72, 176–77 (2017); Jeffrey M. Hirsch, Future Work, 2020 U. Ill. L. Rev. (forthcoming 2020) (manuscript at 3) (on file with author); Pauline T. Kim, Data-Driven Discrimination at Work, 58 Wm. & Mary L. Rev. 857, 860–61 (2017) [hereinafter Kim, Data-Driven Discrimination at Work]; Pauline T. Kim, Data Mining and the Challenges of Protecting Employee Privacy Under U.S. Law, 40 Comp. Lab. L. & Pol’y J. 405, 406 (2019); Pauline T. Kim & Erika Hanson, People Analytics and the Regulation of Information Under the Fair Credit Reporting Act, 61 St. Louis U. L.J. 17, 18–19 (2016); Charles A. Sullivan, Employing AI, 63 Vill. L. Rev. 395, 396 (2018). ↑
  17. See infra Section II.C. ↑
  18. See infra Section II.D. ↑
  19. Building predictive models involves numerous choices, many of them implicating value judgments. See, e.g., Barocas & Selbst, supra note 15, at 674; Margot E. Kaminski, Binary Governance: Lessons from the GDPR’s Approach to Algorithmic Accountability, 92 S. Cal. L. Rev. 1529, 1539 (2019); David Lehr & Paul Ohm, Playing with the Data: What Legal Scholars Should Learn About Machine Learning, 51 U.C. Davis L. Rev. 653, 703–04 (2017); Andrew D. Selbst & Solon Barocas, The Intuitive Appeal of Explainable Machines, 87 Fordham L. Rev. 1085, 1130–31 (2018). ↑
  20. Karen Levy and Solon Barocas have explored how the design choices made by platforms “can both mitigate and aggravate bias.” Karen Levy & Solon Barocas, Designing Against Discrimination in Online Markets, 32 Berkeley Tech. L.J. 1183, 1185 (2017). The focus of their analysis is on user bias in online markets like ride matching, consumer-to-consumer sales, short-term rentals, and dating. Id. at 1189–90. Because the design choices platforms make will structure users’ interactions with one another, these choices influence behavior, affecting whether or to what extent users can act on explicit or implicit biases. Levy and Barocas review multiple platforms across domains and develop a taxonomy of policy and design elements that have been used to address the risks of bias. Although the focus of this Article is on the impact of predictive algorithms rather than user bias, the issues are obviously interrelated. Past bias by users can cause predictive algorithms to discriminate. Conversely, algorithmic outputs in the form of recommendations or rankings can activate or exacerbate implicit user biases. To that extent, some, but not all, of the strategies they identify may be relevant to addressing bias in online opportunity markets. ↑
  21. See Griggs v. Duke Power Co., 401 U.S. 424, 431 (1971). ↑
  22. See infra Part III. ↑
  23. 47 U.S.C. § 230 (2012). ↑
  24. See infra Section IV.B. ↑
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